SWITZERLAND
Luca Beffa, Joachim Frick, Gentiana Imeri, Urs Zenhäusern
A. LEGISLATION AND RULES
A.1 Legislation
A.1.1 Revision of the Swiss Arbitration Act
Switzerland is currently revising its Swiss Arbitration Act (i.e. chapter 12 of the Swiss Federal Act on Private International Law (PILA)) that governs international arbitral proceedings seated in Switzerland. The draft bill, published by the Swiss Federal Council in October 2018, has been sent to the Swiss Parliament for debate and its entry into force is expected to take place between 2020 and 2021. It seeks to selectively adjust and modernize some of the current provisions of chapter 12. The revision most notably includes the codification of the jurisprudence of the Swiss Federal Supreme Court, the adaption of the law to recent developments in international commerce and arbitration, the elimination of ambiguities as well as the increase of user-friendliness. With the intended amendments, the Swiss Arbitration Act shall continue to be one of the internationally most regarded arbitration laws.
A.1.2 Revision of the Swiss Data Protection Act
Data protection is increasingly gaining relevance in international arbitration. The EU General Data Protection Regulation (GDPR) applies to international arbitration proceedings as soon as only one arbitrator on a panel of three is subject to its provisions. Hence, also arbitrators not domiciled in the European Economic Area (EEA) will nevertheless have to comply with the GDPR to avoid legal sanctions for the one arbitrator located in the EEA. In the future, this issue can be by-passed by moving arbitral seats to Switzerland, which is not part of the EEA- Switzerland is currently revising its Data Protection Act (DPA). The DPA foresees to exclude proceedings from arbitral tribunals all together from its scope of applicability, making Switzerland once more attractive for international arbitration.
A.2 Institutions, Rules and Infrastructure
A.2.1 New Swiss Rules of Commercial Mediation
The Swiss Chambers’ Arbitration Institution (SCAI) has revised the Swiss Rules of Commercial Mediation to facilitate and encourage their use by resolving ambiguities in the wording and by increasing conciseness. The new rules entered into force on 1 July 2019. They contain several provisions to allow parties to benefit from the advantages of the United Nations Convention on International Settlement Agreements Resulting from Mediation, also known as the Singapore Convention. Furthermore, the new rules also intend to facilitate the combination of mediation with arbitration or litigation.
A.2.2 The Launch of the Zurich International Commercial Court (ZICC)
A working group of Swiss arbitrators and litigators has launched a project for establishing a Zurich International Commercial Court. The idea is to set up the ZICC as a special chamber of the existing Commercial Court in Zurich and to give it the competence to decide cross-border commercial disputes in particular small and medium-sized enterprises in Switzerland. With the establishment of such a court, Switzerland would complement its dispute resolution services thereby increasing its attractiveness as a jurisdiction for international commercial disputes.
B. CASES
B.1 Right to be heard
In a decision of January 17, 2019[1], the Swiss Supreme Court concluded that an arbitral tribunal does not breach the right to be heard if it does not address a not-material issue in its award even though one of the parties had presented it. The arbitrators are only obliged to address the issues which are relevant to the case. Accordingly, the fact that the arbitral tribunal has not heard a witness, which was proposed by one of the parties without establishing that relevant questions would be addressed, is not a breach of the right to be heard.
The Swiss Supreme Court also held in accordance with previous decisions that a wrong, even arbitrary application of the procedural rules of the tribunal does not qualify for a breach of the ordre public.
B.2 Independence of Arbitrators
In a decision of October 16, 2019[2], the Swiss Supreme Court held that the fact that an arbitrator appointed by a party had worked for a few years in the same law firm as the attorney of this party is not considered as a breach of independence. This, even though the arbitrator had called the attorney to investigate the law applicable to the case in view of selecting potential candidates for the presiding arbitrator. Even though article 4.4.1. of the IBA Guidelines on Conflicts of Interests assume that contacts are limited to the time prior to the appointment of the arbitrators, a call of 12 minutes to discuss the applicable law and a question, which was relevant to the question of finding a suitable presiding arbitrator, would not create the impression of lack of independence.
B.3 Compliance with Deadlines by electronic submissions
In a judgment of April 11, 2019[3], the Swiss Supreme Court held that the submission of an electronic copy without an appeal brief even though the CAS had set a deadline of 10 days to submit an appeal in seven copies was not sufficient to meet the deadline. The claimant had declared that due to a temporary replacement in the secretariat of the office and the moving of the office for three days, he would not be in a position to prove that it had sent hardcopies on time. The Swiss Supreme Court did not see it as an overly formalistic approach of the tribunal. Accordingly, it could leave open whether an overly formalistic approach would constitute a breach of the procedural ordre public.
B.4 Transmission of a Courtesy Copy of an Award
In a decision of October 16, 2019[4], the Swiss Supreme Court held that in principle the transmission of a PDF-copy by e-mail of an award does not trigger the running of the time period for a setting-aside-proceeding. However, if the recipient only months later detected that the hardcopy of the decision lacked some pages, he was obliged to immediately complain to the tribunal. Otherwise, the party breached good faith and loses the possibility of a setting-aside-proceeding. The party should have, immediately after receiving the incomplete award, reported this to the tribunal and requested a complete copy.
B.5 CAS award confirmed despite the violation of the right to be heard
In its judgment of 29 January 2019[5], the Swiss Supreme Court changed its case-law: If the violation of the right to be heard did not affect the outcome of the proceedings, the challenged award does not have to be set aside.
The Swiss Supreme Court generally states in its decision that the right to be heard is a claim of a “formal” nature. However, since this claim cannot be an end in itself, there is no reason to set aside the challenged award unless there is proof that the violation of the right to be heard had an impact on the outcome of the proceedings. A party claiming a violation of the right to be heard under article 190 (2) (d) Swiss Private International Law Act (PILA) does not only have to prove the violation of the right to be heard as such but also how the violation affected the outcome of the challenged arbitral award.
B.6 Extension of arbitration agreement to non-signatory upheld under New York Convention
The Swiss Supreme Court stated in its decision of 17 April 2019[6] that an arbitration clause in a distribution agreement is, in principle, only binding for the signatory parties. Under certain conditions, however, the arbitration clause may also bind non-signatories.
The formal requirement of article II (2) New York Convention (NYC) only requires that the arbitration agreement has to be signed by the initial signatory parties at the time of the signing of the contract. The agreement may still extend to non-signatories provided that the third party is materially bound by the arbitration clause. According to the Swiss Supreme Court, the formal requirement of article II (2) NYC corresponds to article 178 (1) PILA. Case law relating to the extension of arbitration agreements to non-signatories under article 178 PILA is therefore fully applicable. This is in line with the Swiss Supreme Court’s case-law according to which the formal requirement of article 178 (1) PILA applies only to the declaration of intent of the parties to the arbitration agreement, whereas the binding of third parties is governed by the applicable law.
Where a non-signatory party is involved in the performance of an agreement and acts in a way that shows its intent to be a party to the agreement and the arbitration clause, the arbitration clause can bind non-signatories. In such a case, the third party’s consent to arbitral jurisdiction is assumed by implied action.
B.7 Requirement to validly opt-out of rules governing domestic arbitration in favor of those governing international arbitration
In its decision of 7 May 2019[7], the Swiss Supreme Court dealt with the question under which exact conditions the parties in domestic arbitration proceedings can validly exclude the applicability of part 3 of the Swiss Civil Procedure Code (CPC) (which governs domestic arbitration) in favor of chapter 12 of the PILA (which governs international arbitration) (so-called opting-out clause).
The subject of the dispute was a procedural order that the Court of Arbitration for Sport (CAS) transmitted to the parties, which contained the following provision: “In accordance with the terms of the Present Order of Procedure, the parties agree to refer the present dispute to the Court of Arbitration for Sport (CAS) subject to the code of Sports-related Arbitration (2017 edition) (“Code”). Furthermore, the provisions of chapter 12 of the Swiss Private International Law Statute (PILS) shall apply, to the exclusion of any other procedural law.”
Pursuant to article 353 (2) CPC, the parties may exclude the validity of part 3 of the CPC either in the arbitration agreement or in a subsequent agreement and agree on the application of the provisions of chapter 12 of the PILA. The declaration has to be in written form in accordance with article 358 CPC. According to the case-law of the Swiss Supreme Court relating to article 176 (2) PILA, a valid opting-out in accordance with article 353 (2) CPC must satisfy three conditions set by law: 1) the application of part 3 of the CPC is expressly excluded; 2) the exclusive application of the provisions of chapter 12 of the PILA is agreed, and 3) the express declaration of the parties is in written form.
Accordingly, it is not sufficient to merely agree on the rules of international arbitration; the parties must explicitly exclude the application of the CPC. However, it is not strictly necessary that the wording of the arbitration agreement explicitly mentions part 3 of CPC or chapter 12 of PILA. According to the Swiss Supreme Court’s case-law on article 176 (2) PILA, the absence of such an explicit reference in the dispute clause may be consistent with the meaning of article 353 (2) CPC. In the present case, the wording in the Order of Procedure (“to the exclusion of any other procedural law”) makes it sufficiently clear that the parties have agreed on the exclusion of part 3 of the CPC in favor of chapter 12 of PILA. As a result, the disputed clause constitutes a valid opting out within the meaning of article 353 (2) CPC.
B.8 CAS decision to appoint a sole arbitrator not subject to challenge
In its decision of 6 June 2019[8], the Swiss Supreme Court dealt with the question of whether a decision made in an international arbitration procedure by which an arbitration organization (i.e. CAS) has appointed an arbitrator can be set aside before the Swiss Supreme Court.
According to the Swiss Supreme Court, the decision of the President of the Appeal Arbitration Division of the CAS regarding the appointment of a sole arbitrator is inadmissible before the Swiss Supreme Court.
Pursuant to article 77 (1) (a) Swiss Federal Statute in conjunction with article 190-192 PILA, a final, partial or preliminary decision of the arbitral tribunal may be challenged before the Swiss Supreme Court. A simple procedural order, which can be amended or revoked during the arbitration proceedings itself, cannot be challenged. An arbitral organization’s decisions regarding the constitution of an arbitral tribunal are not arbitral awards and are, as such, inadmissible when it comes to appeals to the Swiss Supreme Court. However, the party may raise the issue in the appeal proceedings against the first contestable arbitral award.
B.9 The legal reasoning set out in the decision remanding an award is binding on the arbitral tribunal
If the Swiss Supreme Court approves a motion to set aside an arbitral award and remit the case to the arbitral tribunal for a new decision, the arbitral tribunal must render a new decision in accordance with the Swiss Supreme Courts’ considerations.
In its decision of 4 July 2019[9], the Swiss Supreme Court stated that if it remits the case to the lower court (i.e. the arbitral tribunal), the matter covered by the rejection may not be extended or be subject to a new legal basis. This binding effect is a procedural principle that also applies to arbitration.
B.10 Arbitration clause in articles of association
In its judgment of 22 July 2019[10], the Swiss Supreme Court dealt with arbitration clauses and their validity in articles of association for associations. According to doctrine and case law, arbitration clauses in articles of association are considered valid if either a global reference to the articles of association exists and the articles of association are submitted to the signatory party, or the declaration of accession contains a specific reference to the arbitration clause in the articles of association.
The admissibility of statutory arbitration clauses was added in the revision draft of chapter 12 of the PILA with the introduction of article 178 (4) E-PILA and article 358 (2) E-CPC. The admissibility and legal validity of arbitration clauses in the statutes of public limited companies are similarly clarified in article 697n E-Code of Obligations (CO), which is going to be introduced as part of the current revision of the law on public limited companies.
B.11 Court finds state not bound by arbitration clause signed by state-owned entity
The Swiss Supreme Court decided on 24 September 2019[11] whether the Libyan non-signatory state is bound by an arbitration clause signed by a state-owned entity (in Libya).
The appellants argued in their application to set aside the partial award that the landmark Westland case (4P 1675/1987 of 19 July 1988) denying the extension of an arbitration clause signed by a state-owned entity to a state was outdated and therefore, the state of Libya should become a party to the arbitration.
The Swiss Supreme Court reiterates that, under Swiss case law, non-signatory third parties can be bound by an arbitration clause in exceptional circumstances. Such exceptional circumstances are, in particular, the assignment of claims, the cumulative or private assumption of debt, or the transfer of contract. The appellants did not assert that such exceptional circumstances apply in the present case. The Swiss Supreme Court confirmed under Swiss law the tribunal’s decision not to extend the arbitration clause based on the unproven involvement of respondent 2 in the contract, despite respondent 1 being a state-controlled entity. Accordingly, the fact that a party is a state-owned entity is not sufficient, as such, to extend an arbitration clause to the respective state as a non-signatory party.
The Swiss Supreme Court recalled that a non-signatory party, which repeatedly participates in the performance of the agreement with an arbitration clause expresses by such conduct its willingness to become a party to the arbitration clause. However, this applies only under the condition that the defendant shows the intent to be bound by the arbitration agreement. The fact that the respondent 2 (the Libyan state) was under authoritarian rule at the time of the conclusion of the contract and that the infrastructure project in question was particularly important to the government does not mean that the respondent 2 would like to perform the agreement.
[1] BGE 4A_438/2018.
[2] BGE 4A_264/2019.
[3] BGE 4A_54/2019.
[4] BGE 4A_264/2019.
[5] 4A_424/2018.
[6] 4A_646/2018.
[7] 4A_540/2018.
[8] 4A_146/2019.
[9] 4A_462/2018.
[10] 5A_1027/2018.
[11] 4A_636/2018.
